Small businesses face payment crisis

LEGISLATION aimed at forcing companies to pay their bills promptly hasn't worked and small businesses are owed an estimated £11bn.

Research out today shows that thousands of small companies run the risk of closure because of the serious cash flow problems caused by non-paying customers.

Although the Government has introduced laws to tackle the late-payment culture, small business leaders say that it is not realistic to expect them to pursue customers for unpaid bills, especially when they are so reliant on the contracts for their continued survival.

Research by BACS Payment Schemes shows that about one third of small and medium-sized enterprises (SMEs) experience late payment problems and businesses in the UK are waiting on over £11bn collectively. The study found that if the delay in payment is up to two months late, some 17% - or 56,270 businesses – could close. On average companies are owed £33,600 at any one time.

An amazing 88% of small businesses blamed customers for deliberately withholding payment as the main reason they were paid late.

For those that do manage to stay afloat, late payments have a considerable impact on day-to-day running and long-term business viability. Some 10% of companies whose bills go unpaid say they aren't able to pay their workforce if payment is a week late, while 38% of businesses with late payment difficulties struggle to pay their own bills on time.

The real impact of late payment is on efficiency – 58% of all SMEs say they'd be a lot more productive if they didn‘t have to keep chasing invoices.

Mike Chambers, managing director of BACS Payment Schemes Limited said the figures showed how serious unpaid bills could be: 'A single late payment can have serious implications not just for one business, but others further down the line.'

A separate survey earlier this year revealed that many British company directors aren't even aware of laws that enable them to pursue late debtors to court.

The research revealed that only 43% of the UK's owner-managers are aware of The Late Payment of Commercial Debts (Interest) Act, which allows businesses to charge interest of 11.25% on late payments from their customers. Only a fraction - 3% - have actually used this legislation against their debtors. Even fewer - 2% - say that it has helped them overcome the problem of bad debt, according to the study by accountants MacIntyre Hudson.

Small business leaders complain that it is not always realistic to expect them to pursue important customers because the loss of business goodwill would have an equally serious affect on them.